Swedish engineer Hexagon is in excellent shape

This Swedish engineer has been overshadowed by bigger local peers, but is well worth a look

950_MW_P27_Companies

Swedish engineering company Hexagon has been overshadowed by bigger local peers, but is well worth a look.

Sweden is well known for its engineering companies such as Atlas Copco, Saab, Sandvik, and Volvo. A more obscure Swedish name in this field is Hexagon AB (Stockholm: HEX AB), a precision-engineering and software company with a market value of €16bn. It combines sensors, satellite-based positioning technology and software to transform clients' operations and improve their productivity.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

For instance, Hexagon developed the first complete industrial assembly process based on laser measurements for the Airbus A380 programme. The system uses four Hexagon laser trackers (two for the wings and two for the fuselage), all connected to special control and measurement software. China HQC, meanwhile, used Hexagon to design the world's largest indirect coal liquefaction project. This involved more than 13,000 pipelines and 2,400 pieces of equipment that had to withstand high temperatures and internal stress.

Hexagon has customers across a diverse range of industrial sectors, from agriculture and construction to manufacturing and mining. It invests a high 10%-12% of sales in research and development (R&D) to drive organic growth and also made ten small acquisitions during 2018. It is profitable with a very high operating margin of almost 25%, while sales have jumped by 50% in six years. Earnings per share have doubled over the same period.

Advertisement
Advertisement - Article continues below

A large global footprint

This wide geographic and sectoral spread of sales ensures stable sales and earnings since a recession in one region or sector is compensated for by growth in another. In the fourth quarter of 2018 double-digit growth was recorded in Russia, Eastern Europe, South America, India and Japan while the Middle East contracted and Western Europe grew by 5%.

Hexagon introduced several new products last year, including an anti-jam antenna for offshore oil and gas platforms to nullify jamming and interference that can overpower satellite signals. Then there is a next-generation airborne mapping system, Leica TerrainMapper, used for forestry monitoring and infrastructure planning.

Going shopping

Bricsys develops computer-aided design (CAD) software for collaborative building design. Bricsys adds to Hexagon's existing structural and piping design range to enable the company to offer an end-to-end platform covering conceptual design, CAD, building information modelling, collaboration tools, project and cost controls, and progress documentation. In a full year Nextsense should add revenue of €16m, AutonomousStuff €51m and Bricsys €16m. All three are therefore small but important additions to Hexagon's range of products.

A highly profitable performer

Hexagon AB (Stockholm: HEX AB)
Investment measureInvestment ratio
Market CapSEK157bnP/E (2020)16.8
Share priceSEK441.3Net debt€1.87bn
Results20172018Change
Turnover€3.45bn€3.76bn9%
Operating profit€824m€93213.1%
Earnings per share€1.84€2.019.2%
Dividend per share€0.53€0.5911.3%

Hexagon's first-quarter results were announced on 7 May and showed sales growth of 10% from the first three months of 2018. Part of this growth came from acquisitions; organic growth hit 4%.

Overall growth would have been 17% had the safety & infrastructure arm of GES sold as much as last year rather than 17% less. Hexagon is taking action to stabilise the division in the second quarter and regain growth later this year to raise the overall organic growth rate substantially. Risks include the possibility that this could take longer than expected, while the US-China trade dispute could hamper growth.

Hexagon's three acquisitions in the first quarter of 2019 were Thermopylae (mapping for US defence and intelligence customers), J5 (industrial operations management software) and Etalon (smart factory systems). These and other 2019 acquisitions will drive growth. New launches in the January-to-March period included products for mine operations management, testing and simulation of autonomous driving systems, and three-dimensional long range laser scanners. Analysts predict earnings per share (EPS) of SEK26.2 for 2020 (compared with SEK20.9 for 2018), giving a forward p/e of 16.8. Hexagon is a diversified digital engineering company with an excellent record.

Advertisement

Recommended

Visit/investments/stocks-and-shares/share-tips/600641/share-tips-of-the-week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020
Visit/519913/share-tips-8-stocks-for-robust-returns
Share tips

Share tips: eight stocks that should deliver robust returns

Ryan Ermey of US publication Kiplinger’s Personal Finance chooses his favourite stocks for the next decade, which should be able to grow for years.
28 Dec 2019
Visit/519724/share-tips-of-the-week-166
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
20 Dec 2019
Visit/519436/share-tips-of-the-week-165
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
13 Dec 2019

Most Popular

Visit/investments/property/601110/house-prices-and-covid-19
Property

House prices and Covid-19

The housing market is in deep freeze – what happens when it thaws out?
5 Apr 2020
Visit/economy/global-economy/601114/whos-going-to-pay-for-the-war-on-coronavirus
Global Economy

Who’s going to pay for the war on coronavirus?

Central banks and governments are throwing money at coronavirus to stem the pandemic and prop up their economies. But who's actually footing the bill?…
6 Apr 2020
Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/investments/property/601081/three-things-matter-for-the-uk-housing-market-now-and
Property

Three things matter for the UK housing market now – and “location” isn’t one of them

The UK housing market is frozen. And when it does eventually thaw out, the traditional factors that drive prices will no longer apply. The day of reck…
1 Apr 2020